Casamatta v. Castle Law Office of Kan. City, P.C. (In re James), Case No. 17-41965-BTF7
| Decision Date | 28 November 2018 |
| Docket Number | Adv. Case. No. 18-4172-CAN,Case No. 17-41912-BTF7,Adv. Case. No. 18-4196-CAN,Adv. Case. No. 18-4194-CAN,Case No. 17-41960-DRD7,Adv. Case. No. 18-4168-CAN,Case No. 17-41914-CAN7,Case No. 17-41965-BTF7 |
| Parties | In re: ROSA NICHOLE RENEE JAMES, Debtor. DANIEL J. CASAMATTA, Acting United States Trustee, Plaintiff, v. CASTLE LAW OFFICE OF KANSAS CITY, P.C., a Missouri Professional Corporation, and JASON C. AMERINE, Defendants. In re: HUZAIFAH TARIK BABIKIR, Debtor. DANIEL J. CASAMATTA, Acting United States Trustee, Plaintiff, v. CASTLE LAW OFFICE OF KANSAS CITY, P.C., a Missouri Professional Corporation, and JASON C. AMERINE, Defendants. In re: ANTOINETTE MICHELLE GRANT, Debtor. DANIEL J. CASAMATTA, Acting United States Trustee, Plaintiff, v. CASTLE LAW OFFICE OF KANSAS CITY, P.C., a Missouri Professional Corporation, and JASON C. AMERINE, Defendants. In re: JEFFEREY SCOTT HANNAH, Debtor. DANIEL J. CASAMATTA, Acting United States Trustee, Plaintiff, v. CASTLE LAW OFFICE OF KANSAS CITY, P.C., a Missouri Professional Corporation, and JASON C. AMERINE, Defendants. |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Western District of Missouri |
In re: ROSA NICHOLE RENEE JAMES, Debtor.
DANIEL J. CASAMATTA, Acting United States Trustee, Plaintiff,
v.
CASTLE LAW OFFICE OF KANSAS CITY, P.C., a Missouri Professional Corporation,
and
JASON C. AMERINE, Defendants.
In re: HUZAIFAH TARIK BABIKIR, Debtor.
DANIEL J. CASAMATTA, Acting United States Trustee, Plaintiff,
v.
CASTLE LAW OFFICE OF KANSAS CITY, P.C., a Missouri Professional Corporation,
and
JASON C. AMERINE, Defendants.
In re: ANTOINETTE MICHELLE GRANT, Debtor.
DANIEL J. CASAMATTA, Acting United States Trustee, Plaintiff,
v.
CASTLE LAW OFFICE OF KANSAS CITY, P.C., a Missouri Professional Corporation,
and
JASON C. AMERINE, Defendants.
In re: JEFFEREY SCOTT HANNAH, Debtor.
DANIEL J. CASAMATTA, Acting United States Trustee, Plaintiff,
v.
CASTLE LAW OFFICE OF KANSAS CITY, P.C., a Missouri Professional Corporation,
and
JASON C. AMERINE, Defendants.
Case No. 17-41965-BTF7
Adv. Case. No. 18-4168-CAN
Case No. 17-41960-DRD7
Adv. Case. No. 18-4172-CAN
Case No. 17-41914-CAN7
Adv. Case. No. 18-4194-CAN
Case No. 17-41912-BTF7
Adv. Case. No. 18-4196-CAN
UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF MISSOURI
November 28, 2018
REPORT AND RECOMMENDATION TO THE DISTRICT COURT ON DEFENDANTS' MOTIONS TO WITHDRAW THE REFERENCE
At the heart of this matter is which court - bankruptcy or district - should decide whether the debtors' bankruptcy attorneys violated bankruptcy code provisions and applicable bankruptcy and ethical rules and should be sanctioned. The defendant attorney and his law firm argue that the bankruptcy court lacks jurisdiction and authority to decide these issues. They argue that the act of sanctioning is an exercise of criminal contempt powers, such that only the district court should decide and enter judgment in these four consolidated cases. They request that the district court use its discretion to withdraw the reference of the plaintiff United States Trustee's complaints against them. This court reports and recommends that the district court deny the defendants' motions.1
The relationship between consumer debtors and their bankruptcy attorneys is unique in that the bankruptcy code and rules expressly require full disclosure of fee arrangements, mandatory court review, and disallowance of fees determined to be unreasonable.2 Congress granted this authority to the bankruptcy court in large part because of the particular vulnerability of unsophisticated, financially-strapped consumer debtors.3
To put these cases into context, most courts hold that bankruptcy attorney fees are treated the same way as any other dischargeable debt.4 This means that if the attorney is not paid in
Page 2
advance for preparing and filing the bankruptcy case, the attorney fees are deemed prepetition debts, subject to the automatic stay, and subsequently rendered uncollectible if the debtor receives a discharge.5 Attorney fees incurred for postpetition bankruptcy services, however, may survive the discharge, assuming proper disclosure and compliance with applicable rules.6
As a result, most consumer bankruptcy attorneys follow one of two approaches: they get paid a reasonable flat fee up front; or they make a reasonable bifurcation of fees for pre- and postpetition services. If the fee arrangement is fully disclosed to the court, and the fees charged for both the pre- and postpetition services are reasonable, this court has generally informally allowed such bifurcation. Indeed, such treatment of fees is in part necessitated by the fact that many courts, including this one, require consumer debtors' attorneys to represent their clients throughout the entire bankruptcy case, notwithstanding if the case becomes more complicated than anticipated.7
The UST's theory in these cases is that attorney Jason Amerine and his law firm, Castle Law Office of Kansas City, P.C. ("Castle Law" or the "Defendants"), employed an improper and undisclosed factoring-type billing arrangement for their consumer debtor clients who were unable to prepay the attorney fees, and that that arrangement made it appear that all, or nearly all, of the fees were incurred for postpetition services when they were not. The UST alleges that, as a result of this practice, Castle Law overcharged debtors and misled the court about the nature of the fees,
Page 3
and in so doing, violated a number of bankruptcy code provisions and ethical rules.8 Castle Law denies the allegations.
The debtors in these cases filed voluntary petitions for chapter 7 relief in July 2017 and were represented in their filings by the defendant attorney Jason Amerine and his law firm, Castle Law. The UST filed complaints against the Defendants in each of the four cases, which were then assigned to this judge. By agreement of the parties, the four complaints have been consolidated for discovery and pre-trial proceedings.9 Because the four cases are factually similar, and in the interest of brevity, this court will describe Debtor Rosa Nichole Renee James' case as generally representative of all four. The following recitation does not constitute findings of fact but are based on the parties' allegations in their papers.
Ms. James Meets with Castle Law to File Bankruptcy
The UST alleges that, on January 31, 2017, Ms. James retained Castle Law to file a chapter 7 bankruptcy petition for a total flat fee of $1,650, comprised of $1,250 in attorney fees, $65 for a credit report fee, and $335 for the court filing fee. The UST refers to this agreement with Ms. James as the "Initial Contract." According to the UST, the Initial Contract provided that all fees Ms. James paid under the agreement were "non-refundable" and stated, essentially, that they would not file Ms. James' bankruptcy case until she had paid the $1,650 in toto, and that if she failed to do so, she forfeited all the fees paid. Ms. James made payments to Castle Law totaling $225 under
Page 4
the Initial Contract in the five-month period between the initial January 31 meeting and May 25, 2017.
Castle Law Enters into the BK Billing Factoring Agreement
The UST alleges that, in May 2017 - five months after Ms. James retained Castle Law to represent her in her bankruptcy case - Castle Law entered into a blanket Accounts Receivable Assignment Agreement (the "Factoring Agreement") with BK Billing, LLC, a company located in Utah. According to the UST, BK Billing markets itself to consumer bankruptcy attorneys as providing a means of offering "little or no money down" chapter 7 cases using a two-contract model that purports to bifurcate the services and fees of consumer bankruptcy cases into prepetition and postpetition periods.
The UST asserts that, under the Factoring Agreement (as later amended), Castle Law sold its accounts receivables for postpetition bankruptcy services to BK Billing in exchange for payment, shortly after the filing of the case, of a discounted portion of the total attorney fee. Specifically, BK Billing advanced 75% of the postpetition fee to Castle Law. Castle Law's portion was, however, subject to a "holdback" whereby BK Billing distributed 60% of the fees to Castle Law immediately after the client account was factored and placed 15% in escrow. In turn, BK Billing collected from the debtor the total amount due. According to the UST, the holdback permitted BK Billing to draw from the escrow for costs and expenses incurred if the debtor failed to pay.
Under the Factoring Agreement, the UST alleges, Castle Law was able to enter into "little or no money down" arrangements with clients, including the debtors in each of these cases, under which Castle Law would represent its clients both pre- and postpetition, but structure the agreements so that all or virtually all the payments were intended to compensate solely for
Page 5
postpetition services, regardless of when the work was actually performed. According to the UST, this permitted Castle Law and BK Billing to collect payments from the clients without violating the automatic stay and discharge injunction provisions of the bankruptcy code.
Castle Law Changes the Fee Agreement with Ms. James
The UST alleges that, shortly after Castle Law entered into the Factoring Agreement with BK Billing in May 2017, Castle Law contacted Ms. James and offered to go ahead and file her case with no additional money down - recall, she had only paid $225 of the $1,650 due by this point - if she would agree to enter into new fee agreements. The UST alleges that the purpose of this offer was to bring her account, which had not been subject to the factoring arrangement previously, within the Factoring Agreement.
Ms. James agreed, and on July 6, 2017, Castle Law entered into a new "Attorney-Client Retainer Agreement" with Ms. James, which the UST refers to as the "Pre-Petition Contract." According to the UST, the Pre-Petition Contract replaced the Initial Contract.10 Under this new agreement, Ms. James (again) retained Castle Law to represent her in her bankruptcy case and provided that, once the bankruptcy case was filed, Ms. James would be presented with a second retainer agreement, the "Post-Petition Contract," to pay Castle Law a flat fee of $2,175 for postpetition services. The contracts thus purported to bifurcate Castle Law's services, but, in effect, allocated all the fees to postpetition services.
The Pre-Petition Contract apparently did not address the $225 Ms. James had already paid Castle Law. The UST alleges that the fee of $2,175 was in addition to the $225. The Pre-Petition Contract also did not provide for the court's filing fee or the credit report fee. According to the UST, assuming that the $2,175 included the filing fee and credit report fee, the attorney fee portion
Page 6
was $1,775. When added to the $225 Ms. James had already paid, her actual attorney fee for the chapter 7 bankruptcy was thus $2,000 (exclusive of expenses), an increase of $775 (or approximately 60%) over the $1,250 originally agreed to. The UST asserts the new agreement thus shifted the full cost of...
To continue reading
Request your trial